Div 7A and PCG 2017/13: UPEs – sub-trust arrangements maturing in 2021–2022 and beyond (Options 1 and 2) 

June 9, 2022

The ATO has extended the operation oPCG 2017/13, its current guidance on trust unpaid present entitlements (UPEs) and sub-trust arrangements with interest-only payments, so that it can apply to Option 1 and Option 2 arrangements maturing in 2021-22 and later tax years (but only where the UPE arose before 1 July 2022).

The update to PCG 2017/13 is necessary because the ATO’s proposed new approach to Div 7A (in Draft TD 2022/D1) will only apply to present entitlements arising from

 July ​​​​​​2022. In particular, it is the ATO’s preliminary view that a Div 7A loan can arise if a sub-trust fund is on commercial terms, with a return paid to the fund (ie Options 1 and 2 will no longer be acceptable).

However, PCG 2017/13 now makes it clear that taxpayers can continue to rely on the ATO’s previous guidance (in TR 2010/3 and PS LA 2010/4) if the entitlement arose before 1 July 2022, even if the sub-trust or further loan is put in place after 30 June 2022. TR 2010/3 and PS LA 2010/4 are due to be withdrawn with effect from 1 July 2022.

PCG 2017/13, as amended, includes two tables outlining key dates where an Option 1 or 2 investment is not repaid on time. Crucially, for a UPE arising on 30 June 2022, the tables indicate that the funds can be placed on a sub-trust by 15 May 2023, with the liability to pay interest arising on 30 June 2023. If the principal and final interest are not repaid by 14 May 2030 (for Option 1) or 14 May 2033 (for Option 2), a new seven-year complying loan can be entered into within the year.